In bid for credibility, largest Bitcoin exchange moves to Silicon Valley

Move is designed to make Bitcoin more accessible to American consumers.

The world's leading Bitcoin exchange, Mt. Gox, has announced a partnership with the Silicon Valley startup CoinLab. Under the agreement, CoinLab will handle Mt. Gox's American operations, which account for a large majority of the exchange's business. The transition will occur on March 22.

CoinLab raised half a million dollars of venture capital last year. At the time, the firm was touting a scheme to exchange bitcoins for currency in games such as World of Warcraft and Second Life. Taking over Mt. Gox's US portfolio has the potential to be a much bigger deal, as it will make CoinLab the world's largest intermediary between bitcoins and conventional currencies.

In a Wednesday interview, CoinLab CEO Peter Vessenes told Ars that Mt. Gox was primarily attracted to CoinLab's connections to American banks and investors. Both firms want to make it as easy as possible for American consumers to exchange their dollars for bitcoins, which require better integrating with conventional financial institutions.

As a Japanese firm, Mt. Gox struggled to develop the partnerships it needed. But according to Vessenes, CoinLab's location and conventional investor backing allowed the firm to score a partnership with Silicon Valley Bank. That will allow the firm to offer more convenient ways to transfer dollars to and from the exchange.

Vessenes said better customer service would be a priority. Right now, there's "a bunch of pain points for signup" to Mt. Gox, he told us. Vessenes believes that being an American company will make it easier to smooth over those rough edges.

And in his view, that's particularly important for wealthy individuals who want to purchase and store large quantities of bitcoins. Vessenes says he's had multiple inquiries from people who want to "buy six or seven figures" worth of bitcoins. Not only is acquiring that many bitcoins a hassle under the current system, but someone wanting to put serious money into Bitcoin would have to invest in technical infrastructure to properly encrypt and backup their wallets. This is no small task in a world with Bitcoin-related malware in the wild. CoinLab says it has sophisticated facilities for securely holding bitcoins.

"This should be a huge win for everyone—faster deposit and withdrawal times, easier-to-reach customer service, and better access for United States financial markets, market makers, and liquidity providers” said Mt. Gox's Mark Karpeles said in an e-mailed statement.

Perhaps the most important thing about the CoinLab announcement, though, is the added credibility CoinLab's US location will give it with US consumers. By moving its American operations to the United States, Mt. Gox is sending a signal that it believes it is complying with US law. And placing the exchange's funds within US jurisdiction will make it harder for the firm to disappear with customers' cash.

So under U.S. gestapo law does that mean they have to spy on everyone who has an account with them?

Another question is does the U.S. consider bitcoins to be legal money, maybe like legal tender or some other form of legal money? As it is now when you buy bitcoins with dollars that would be a business loss and when you buy dollars with bitcoins that would be income. Is that correct?

how long until the feds raid this business and seize all the assets for something a bitcoin is used to buy? locating a bitcoin business inside USA territory is asking for a legal problem.

What assets? The Bitcoin block chain (transaction history) is maintained on a worldwide P2P network. Assuming they don't keep much of a dollar balance on hand at Silicon Valley Bank, there is nothing to seize. If I was doing it, I would do daily sweeps to an out-of-country account, and only keep as much US$ cash balance as needed for daily operations.

Hard drives? Encrypted and backed up in the cloud like any sensible business should be doing, especially one dealing with money.

The Gestapo had the authority to investigate cases of treason, espionage, sabotage and criminal attacks on the Nazi Party and Germany. The basic Gestapo law passed by the government in 1936 gave the Gestapo carte blanche to operate without judicial oversight. The Gestapo was specifically exempted from responsibility to administrative courts, where citizens normally could sue the state to conform to laws. As early as 1935, however, a Prussian administrative court had ruled that the Gestapo's actions were not subject to judicial review. The SS officer Werner Best, onetime head of legal affairs in the Gestapo,[11] summed up this policy by saying, "As long as the police carries out the will of the leadership, it is acting legally."[4]

On 27 September 1939, the security and police agencies of Nazi Germany—with the exception of the Orpo—were consolidated into the Reich Main Security Office (RSHA), headed by Heydrich.[2] The Gestapo became Amt IV (Department IV) of RSHA and Müller became the Gestapo Chief, with Heydrich as his immediate superior.[12] After Heydrich's 1942 assassination, Himmler assumed the leadership of the RSHA, but in January 1943 Ernst Kaltenbrunner was appointed Chief of the RSHA. Müller remained the Gestapo Chief, a position he occupied until the end of the war.[12] Adolf Eichmann headed the Gestapo's Office of Resettlement and then its Office of Jewish Affairs (Referat IV B4 or Sub-Department IV, Section B4). He was Müller's direct subordinate.[13]

The power of the Gestapo most open to misuse was called Schutzhaft—"protective custody", a euphemism for the power to imprison people without judicial proceedings. An oddity of the system was that the prisoner had to sign his own Schutzhaftbefehl, an order declaring that the person had requested imprisonment—presumably out of fear of personal harm (which, in a way, was true). In addition, thousands of political prisoners throughout Germany—and from 1941, throughout the occupied territories under the Night and Fog Decree—simply disappeared while in Gestapo custody.[14] During World War II, the Gestapo was expanded to around 46,000 members. After Heydrich's death in June 1942, and as the war progressed, Müller's power and the independence grew substantially. This trickled down the chain of his subordinates. It led to much more independence of action.

Sounds pretty much like the Department of Fatherland Homeland Security which is gaining more power and has less and less accountability each day. No doubt DHS, aka the gestapo, will demand records of all who have bitcoin accounts in the name of whatever bs they make up.

There is no other way to exchange money in the US. In most of western Europe, you can just use someone's BIC and IBAN to get money to their bank account. But if you want to trade in the US, this is not possible. You have to use retarded services like Paypal who will be happy to take away a ridiculously high amount in fees (no shit, those guys will take like 0,5% of your money to make a database update) This is unacceptable and makes bitcoins very attractive in the US and for everybody who want to trade on the internet in the US.

Banks are about to suffer their biggest disruption since the gold standard was abandoned. The advantages that Bitcoins give you far outweigh the disadvantages. It's just a better product than what traditional banks offer us. Don't miss the boat and get started using Bitcoins here! http://thebitcoinmaster.blogspot.com

I don't like this at all. Bitcoin was doing just fine without the main exchange being located in the jurisdiction of the group of people who have most to gain from taking it down. The US authorities have been very successful in leaning on Visa and Mastercard and other US based payment agencies in the past to choke the funding of any site they don't like. Examples include, usenet indexers, poker sites, wikileaks, AllofMP3 and many more.

I wish I would have had the wisdom to have purchased a few thousand of these coins when they first appeared given the thousands of percentage points in value between the value two years ago and the value today. I'm not sure I would feel completely comfortable holding them much longer at this value as ownership may come under such regulatory rules that the bubble collapses, its a wait and see.

I don't like this at all. Bitcoin was doing just fine without the main exchange being located in the jurisdiction of the group of people who have most to gain from taking it down. The US authorities have been very successful in leaning on Visa and Mastercard and other US based payment agencies in the past to choke the funding of any site they don't like.

The beauty of Bitcoin is it runs on a P2P network, so anyone can run an exchange. People can and do trade Bitcoins for cash directly with each other. An exchange like MtGox is just a store that buys and sells national currencies and Bitcoins on a regular basis. Since anyone can set up such a store, kill one and another will pop up to replace it.

The transaction history (block chain) is distributed everywhere in the world, on thousands of user PCs. So you can't "lean on it" to shut an account you don't like.

Great - whereas before, we had to wait for the government to print more money, and the ultra-rich to acquire it through investing, dealing, saving, etc..

Now, they can just buy the whole economy in one big shebang. IIRC, there are something like 21 million bitcoins EVER. And, IIRC, something like 1/3 exist currently. So, if bitcoins ever replaces the dollar, the ultra-rich could, right now at current rates, for around $200-250 million (7 million * $32), buy up 1/3 of all wealth ever. Sounds like a pretty amazing investment to me - it could easily appreciate to the order of TRILLIONS or QUADRILLIONS of dollars, a huge ROI.

And with distributed P2P networking, everyone storing it, etc - it would be nearly impossible to revoke. And of course, we saw what happened when several disparate currencies were forced to amalgamate into the Euro - not an easy transition.

All you ueber-geeks who are dying for bitcoins to take over so you can buy stuff from silk road or whatever without "the man" knowing about it may actually be building the foundations of your own dystopian future - with all transactions public, given enough time and effort, you probably CAN be found out. And the ultra-rich own 99.9% of the economy with no hope of ever losing it, thanks to your super-secure protocol.

Great - whereas before, we had to wait for the government to print more money, and the ultra-rich to acquire it through investing, dealing, saving, etc..

Now, they can just buy the whole economy in one big shebang. IIRC, there are something like 21 million bitcoins EVER. And, IIRC, something like 1/3 exist currently. So, if bitcoins ever replaces the dollar, the ultra-rich could, right now at current rates, for around $200-250 million (7 million * $32), buy up 1/3 of all wealth ever. Sounds like a pretty amazing investment to me - it could easily appreciate to the order of TRILLIONS or QUADRILLIONS of dollars, a huge ROI.

And with distributed P2P networking, everyone storing it, etc - it would be nearly impossible to revoke. And of course, we saw what happened when several disparate currencies were forced to amalgamate into the Euro - not an easy transition.

All you ueber-geeks who are dying for bitcoins to take over so you can buy stuff from silk road or whatever without "the man" knowing about it may actually be building the foundations of your own dystopian future - with all transactions public, given enough time and effort, you probably CAN be found out. And the ultra-rich own 99.9% of the economy with no hope of ever losing it, thanks to your super-secure protocol.

Bitcoins will never, ever replace the dollar, like the dollar never replaced gold, oil and shit. Bitcoins are a financial product. Nothing more, nothing less. It's not "the economy", it is a currency. You are confusing a financial product with the economy. The two are barely related. Basically, the economy is the production and consumption. The financial products are virtual tools that can be used either for trading (which helps the economy a bit) or for parasiting the economy (which has a negative impact on the economy and is the most common usage or financial tools).

I bought some bitcoins on Coinbase. It was pretty easy. Like PayPal for Bitcoins. But yeah, the US gov't will definitely try to shut it all down if it gets further momentum. We'll see how well this crypto currency holds up under that sort of pressure and scrutiny from the US gov't. After all, that was the whole point of it, from what I understand -- so nobody can stop or control it.

"the added credibility CoinLab's US location will give it with US consumers". Well, then they made a poor decision. Do they really believe the institutions in the USA have any remaining credibility with US consumers?

There is no other way to exchange money in the US. In most of western Europe, you can just use someone's BIC and IBAN to get money to their bank account. But if you want to trade in the US, this is not possible. You have to use retarded services like Paypal who will be happy to take away a ridiculously high amount in fees (no shit, those guys will take like 0,5% of your money to make a database update) This is unacceptable and makes bitcoins very attractive in the US and for everybody who want to trade on the internet in the US.

You think 0.5% per transaction is a lot? Just ask Western Union how much they charge to wire over money. Their rates are highway robbery at its finest.

Timothy B. Lee / Timothy covers tech policy for Ars, with a particular focus on patent and copyright law, privacy, free speech, and open government. His writing has appeared in Slate, Reason, Wired, and the New York Times.